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9/25/07

What is the Difference Between a Real Estate Broker and a Real Estate Agent?

As articulated to me by my real estate teacher before I obtained my real estate salesperson license, “the agent is scum and the broker is god!” This is a very important lesson to learn. The problem that most aspiring licensees have is that they are under the false impression that once they receive a license, they have free reign to sell any property and represent any client that they see fit. The truth is, agents are nothing without their brokers. A licensee cannot sell any property or any timeshare, nor can he/she represent any client without the consent and involvement of the broker.

Educational requirements are another difference between an agent and a broker. In order to obtain a real estate salesperson license (depending on the state in which a license is obtained), a person usually need only show proof of having taken a specified number of hours of real estate classes and pass a test. However, the requirements to obtain a broker’s license are far stricter. First of all (once again, all states are different so check your local laws), brokers usually need to have completed a specified number of college credits in specified subjects. Additionally, to sit for the broker’s exam, a person usually needs to have worked full time as a real estate salesperson or real estate broker/salesperson for two years during the last five years. Also, the broker’s exam requires an additional fee that is usually higher than the exam fee for a real estate salesperson. Last, some states provide an exception to the requirements of work experience and college credits for a broker’s license if the applicant has obtained a bachelor’s degree from an accredited university. Some states waive the experience and educational requirements if the applicant is a licensed lawyer. However, absent spending the money and time to successfully complete law school, most applicants will have to meet the educational and experience requirements.

The preceding paragraph begs the question, “If sitting for the broker’s license requires all of those additional qualifications, what is the advantage of having a broker’s license?” The main advantage of having a broker’s license is money! Let us be realistic about the real estate business; I am sure that it feels great to help a person buy their first home. However, if a person wanted a job solely for the good feeling, becoming a real estate agent or broker would not be near the top of the list, if at all. People become real estate agents for the money. Real estate agents can make a lot of money through commissions. However, the broker that employs the agent will always make more. The best way to become rich is to make money of the efforts of others. Brokers usually collect anywhere between 10% to 50% of the agent’s commission. Now, if a broker employs ten agents, that broker is making money off of his/her efforts and off the efforts of ten others. Real estate agents cannot do this, therefore, would you rather be a broker or a real estate salesperson?

Before you answer that question, it is important to note the liability issues with brokers. A broker has a duty to supervise and train agents, therefore, if the agent messes up, the broker could be held liable along with the agent. Back to the example of the broker that employs ten agents; that broker has the possibility of being held liable for the mistakes of ten people whereas a salesperson can only be held liable for his/her own mistakes. The broker in our example may get ten times the monetary benefit, but, in return, he/she has ten times the liability issues.

In the end, if the broker is competent, the liability issues can be easily avoided (also helping a broker in this task is the fact the most states require a continuing education requirement where a salesperson has to take “refresher” classes every two years in order to renew their real estate licenses). Therefore, although harder to obtain, if you possess the necessary qualifications, the monetary benefits of being a broker outweigh any potential liability issues.


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9/22/07

The Advantages of Multiple Sources of Income

The advantages on having more than one source of income seem obvious. More than one source of income means more money. However, the advantages of multiple income sources are more than just more money.

First, multiple income sources diversifies your risk. If one income source is cut-off or fails, there is still one or maybe more that is unaffected by the failure of the first (assuming the income sources come from different markets). For example, let us say that you are a computer programmer and that you have some investments in real estate, specifically, real estate rentals. If you stop receiving a paycheck from your computer programming job, your income from your real estate rentals will most likely be unaffected. The additional source of income creates a “safety net” so that money is still coming in the door.

Another advantage of multiple income sources is efficiency of work. In other words, you can make more money per hour while doing the same amount of work. For example, if you were to get a second job, you would be making more money and you would have another source of income, however, you would not be working efficiently. On the other hand, if you had stock investments that pay dividends, real estate investments that pay a rental income, a website with advertising income, etc. you would be making more money per hour for doing the same amount of work, and thus, be more efficient.

Last, and probably most importantly, having an additional income source can give you free time and peace of mind. Having free time is great, but having free time to worry about your finances is like slow torture. The point of free time is to spend it doing the thing you love. Nobody loves worrying about money, therefore, the peace of mind that an additional income source can provide is an extremely important element.

The advantages of an additional income source are many, however, do not work harder for it, work smarter and success will be within your grasp.


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9/21/07

How to Give your Kids a Financial Head Start

Money management can be difficult regardless of your age. However, if you want to get your young ones off on the right foot, there are some strategies and tactics you can do to help them achieve financial success.

First and foremost, you, as the teacher, have to be proficient in money management. You cannot expect a student (in this case, your children, nephews/nieces, grandchildren, etc.) to follow your advice if you say one thing but do another. Make sure you practice what you preach and make sure that what you preach is helpful!

Good credit is an important asset these days. Why not get your kids off on the right foot? There are many components to a credit score (that is an article for another day), however, one such component is the length of time a credit account has been established. Currently, there is a credit score loophole that allows an authorized user to gain the benefit of the primary account holder’s entire credit history. As of recently, the Fair Isaac Corporation, the company behind the FICO credit scores, reported that it was going to stop giving these benefits to authorized users. However, adding a person as a joint account holder will give them the same benefits as the authorized user loophole used to. Therefore, I suggest that you add your child(ren) onto one or two of your credit accounts. The accounts have to be major credit cards (Visa, MasterCard, American Express, or Discover) and the accounts and your credit report have to be pristine and have to remain that way! There is absolutely no reason to add your child to a credit account that has delinquencies, late payments, charge-offs, or any other negative information. You are trying to build a good credit score for your child, not make it harder for him/her to establish credit.

Teach your kids about the stock market early. I once read a story about a family. The grandfather taught his grandchildren how to find and read stock quotes in the daily newspaper. He also taught them how to read financials so the grandchildren could have an understanding of a financially sound company. After teaching them this, the grandfather set up an individual stock account for each grandchild. Every year on the respective grandchild’s birthday, the grandfather has the grandchild pick a stock. The grandfather then buys a certain number of shares of that stock for the grandchild. Can you imagine the portfolio these kids are going to have by the time they are eighteen? Not to mention the understanding they will have of the stock market. If you can set up such a plan for your children, I would strongly recommend you do that. If you know nothing about the stock market, find somebody who does and teach your kids from an early age about the power of investment.

Kids appreciate money more when it is their own money that they are spending. Therefore, I suggest that you have your kids get a job (when they are the appropriate age). Making money for themselves will teach them what it takes to earn an honest dollar. Additionally, you can take this lesson a step further and have your kid open a savings account. Have him/her automatically deposit 10% of every check into the savings account. Make sure you find an account with a high interest rate (you may want to stay away from the major banks and look at small savings and loans that are FDIC insured or credit unions that are FDIC insured because their rates will be far higher than Wells, BofA, Wamu, Citi or any other “major” bank). By doing this, your kid will be building a nest egg and you will be able to teach your child about the power of compound interest.

Last, teach you kids the basics of good credit management. When your kid gets his/her first credit card, teach them (among other things) to pay more than the minimum payment, to not have a high balance, and if they cannot afford an item they should not buy it on a credit card. If you helped them by placing them as joint account holders on a couple of your major credit card accounts, teach them not to ruin this head start by getting in “over their head.”

These strategies will give your child a huge head start on the journey to financial success. All of the strategies are easy to initiate, and all are inexpensive to do. Help give your child the head start that you never had.


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9/18/07

What to do if You Win the Lottery

I usually write articles that are more serious in tone, however, sometimes it is fun to write an article on something that will happen to such a small fraction of the population. Let us imagine that you won the lottery. I am not talking about the free lotto card you get from the scratch cards you buy at the supermarket. I am talking about the record breaking hundreds of millions of dollars that makes headlines news and turns you into an instant celebrity. What would you do with all that money?

Traditional advice would be to buy a house, put money away for your kid’s education (if you have kids), start a family (if you do not have kids), buy a car, go on vacation, etc. This is all great and dandy, however, none of that stuff is imaginative enough to encompass the amount of money that you have won. Everything on that list can be done if you make $75,000 per year. Why would anything change if you suddenly won $200 million?

Let us think outside the box. Here are some suggestions on how to spend your winnings. For a mere $100 million you could make history as one of the first people on Earth to take a commercial trip to the moon. Forget Hawaii, the Bahamas, or any other “exotic” location. Take a trip to the moon and be remembered forever!

Why buy a home when you can buy an island?! Fifteen minutes off the coast of Dubai, The World islands exist. Starting at $6.85 million for an island, you could have a piece of property (no home or improvement on it) in some of the most beautiful waters on Earth. Buy the island, build a home, and relax.

There were rumors of FSN putting on a $10 million buy-in poker tournament. It was going to be a $60 million winner-take-all tournament. If you are into the poker phenomenon and think you have what it takes, grab a chair, and your checkbook, and post your blind! It is only $10 million, who cares if you lose!

Alright, alright, you can buy a car. But why waste your time on a $100,000 dollar BMW or Mercedes. Why even look at a $1 million Bugatti, Ferrari, or Lamborghini? If you won the lottery, go all out and get yourself the $8 million Maybach. Cruise in style in this beautiful piece of machinery.

Last, how about some wine? Now, $160,000 is not much money if you just won $200 million, however paying $160,000 for a 1787 Chateau Lafite, Bordeaux is pretty rich considering the bottle could be drunk (along with the $160,000) in a matter of hours. If wine is not your game, how about a 60 year old Macallan Scotch for $38,000? At least the scotch will last longer than the wine!

Now that you have some ideas about what to do with your lottery winnings, what are you waiting for? Go out and test the limits of your checkbook!


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9/17/07

Is it Possible to Define Entrepreneurial Spirit?

Entrepreneurial spirit is the motivation used to better yourself and/or others on your quest to achieve “success.” As far as the definition game goes, I believe that “success” is much harder to define and even harder to obtain that is entrepreneurial spirit.

Put simply, entrepreneurial spirit is motivation. Motivation to do what? That is a question that you have to answer. Nobody can tell you that you are an entrepreneur. Nobody can say, follow these steps and you’re an entrepreneur. Unlike traditional college programs, one cannot major in “entrepreneurialism.” You can take classes on the subject, but for the most part, a Business degree is as close as universities get to offering a major in entrepreneurialism. The point is, you have to find your own reason for choosing the path you chose, and then be responsible for maintaining the passion necessary to complete your quest.

A professor once told me, “an entrepreneur has only three characteristics, Passion, Passion, and Ego.” It was the first two characteristics (passion and passion) that really made me think. Two-thirds of being and maintaining yourself as an entrepreneur is having the passion to be an entrepreneur; having the passion to pursue the entrepreneurial dream; having the passion to think of an idea and see it through to fruition; just simply having the passion to do.

Only you can light the fire to pursue your dreams. School, experience, specialty courses, degrees, and the what not are all just tools to help prepare you for the journey. But, what good are these tools if you do not have the passion to use them? Talking is not action, and many would be entrepreneurs make this fatal mistake. If you want to do something, take action!

I have a friend who became very successful in the real estate business. He came from a similar educational and financial background as me, yet he has already achieved what I currently working toward. We were sitting down one day having coffee and I asked him, “How did you get the financing for your first real estate purchase?” He said, “If you want to get financing, go out and get it. That is what I did.”

My friend did not know anybody special. He did not have rich family members or any other type of monetary connection that I did not. His ace in the hole, his sole source of revenue was his passion. He had the passion to go out and get what he wanted. I am sorry to say that he had more passion than me or else I would have been in the same boat. However, all is not lost. I learned from our little conversation and am better off because of it.

Find your passion; find your “entrepreneurial spirit” and success will follow.


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Tips on Developing a Reputation as a Ubiquitous Businessperson

Ubiquitous is defined as "being or seeming to be everywhere at the same time." How does this help a businessperson's reputation? To be described as ubiquitous means that you can be in more than one place at once. It means that you can handle more than one situation at a time. Put simply, it means that you are a multitasker.

Is being able to multitask a good trait to possess? I believe it is. Being able to effectively complete more than one task at a time helps with efficiency. Efficiency equates to cost savings. Cost savings equate to higher profits. Higher profits equates to more money! Do you see a winning formula here?

Now back to the question at hand; how do you develop a reputation of being a multitasker? First, you have to know your limits. There are many characteristics that will help you in the business world, and you do not have to possess all of them to be successful. Develop the characteristics that play to your strengths. Do not try to bite off more than you can chew just because you want to show your ability to handle multiple tasks. Business partners, investors, and customers will be more concerned will quality than quantity. It makes more sense to do a great job on one project than a mediocre job on three projects. The reason this is true is because even though three jobs were "completed," they will probably have to be redone because of lack of quality. Having to redo things costs money and effectively negates the cost saving purpose of multitasking.

Second, if you evaluate your situation and think you can effectively handle more than one task at a time, try your hand at more responsibility. Start small and take on one additional, small task. For example, if your current project is in real estate investment and your task is to find financing, but you feel that financing will not be a hard project to effectively complete, you may want to take on another small project, such as finding renters (if you are going to hold the real estate).

Last, do not try to do everything yourself. This point is similar to my first point except for one difference. My first point was, do not multitask for the sake of multitasking. This third point is, once you have started multitasking and found that you can successfully do it, do not use this success as a motive to do everything. Nobody can do everything, and if you attempt to, two possibilities will result: (1) you will get "burned out" and not be able to effectively perform any task; or (2) you will not be able to complete all the tasks and some aspect of your project will "fall through."

Having the ability to multitask will be beneficial to your future success, however, only do so within your limits. Remember, effectively completing one task is better than partially completing multiple tasks. The whole point of multitasking is cost saving, and this only works if projects do not have to be redone. Be ubiquitous, but not irrational, and your reputation will develop accordingly.


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9/14/07

How the Internet Levels the Playing Field for the Small Entrepreneur with Big Ideas

A common theme among aspiring entrepreneurs is that they possess as many ideas as stars in the sky. You and your business partners spend countless hours preparing a “package” that you can show people in hopes that they will think your idea is great and will want to help. You and your business partners planned and thought of every possible, microscopic detail. You are very proud of your idea and your work, however, you soon realize that a big monetary investment is necessary in order to put you idea “into action.”

This is the point where most ideas fall apart. Getting financing is not an easy task. You can try the traditional channels (such as banks and other lending institutions), but chances are, unless you have vast amounts of experience, excellent credit, and a large amount of collateral, you will most likely not get the loan you sought. An alternative is to find “private money.” The problem with this is that many times private investors will want a large piece of your idea (by way of a percentage of gross revenue) or will want management control. You may agree to a “bad” deal if you are desperate and find that the investor is making more money than you! What are your alternatives?

This is the part when you may expect that I tell you how great the Internet is and how it has changed the modern business model. Well, it is true that the Internet is great, and it is true that the Internet has revolutionized modern business, however, many pitfalls exist that can make your Internet business awakening a real life nightmare.

First, the good. The Internet is a relatively inexpensive way to advertise your business. It allows many opportunities for an aspiring entrepreneur that would otherwise be closed off in a traditional business building model. The Internet allows provides a very large audience where you can sell your products. In other words, you are no longer restricted by state and international borders. The world is your oyster, so to speak. In addition to the advertising benefits, start-up costs are relatively inexpensive. Owning and maintaining a website is far less costly than owning (or leasing) and maintaining an office and/or store.

Now, the bad. The Internet can have many pitfalls for the inexperienced “webtrepreneur.” You have to be wary of the people you meet on-line. Many people will promise you gold, but only deliver lead. Make sure you do not jump into a “business relationship” on-line just because the other person delivers a good pitch. That being said, there are many sincere people on-line who will possess goods and/or services that may help you in your business endeavor. Feel these people out, develop a steady communication, and ask for credentials. Who knows, you may be able to build an important business bridge!

One of the biggest problems with Internet companies is that something may be wrong with your website code. In other words, your page may not be navigating properly, loading properly, or receiving and sending payments properly. In order to prevent these problems, you are going to have a website programmer, or some other computer savvy person on the payroll at all times. As inventory changes or new products come in, you are going to have to update your website in order to make sales. This is where your programmer comes into play. In may be costly at first, but losing business to lost sales due to website malfunctions, will cost you much more.
As a whole, the Internet has made it easier for entrepreneurs to pursue their dreams. Remember to weigh the advantage against the disadvantages. Take advantage of the benefits and avoid the pitfalls and you may find the success for which you are looking.


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